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At the March 2025 Australian Institute of Company Directors Australian Governance Summit, we hosted a discussion on the evolving challenges and expectations surrounding payroll and entitlements compliance. The conversation featured insights from Fair Work Ombudsman Anna Booth and Gilbert + Tobin Co-founder and Chairman Danny Gilbert, highlighting key themes.
1. Small payroll errors can lead to big consequences
Payroll compliance mistakes—even seemingly minor ones—can quickly escalate into significant financial and reputational risks. Reviews often uncover discrepancies of 1-3% of headcount costs, which, if unaddressed, compound over time.
Anna Booth echoed this sentiment, noting, “Most employers strive to comply, but inadvertent errors occur.” She highlighted that when one person is underpaid, it is often indicative of broader systemic issues within the organisation.
2. Payroll compliance needs clear accountability
Directors should not assume payroll compliance is automatically assigned within management—often, no single person "owns" payroll compliance within an organisation. Danny Gilbert echoed this reiterating that, “In a small organisation, the CEO might handle it. In a larger company, it must be assigned to someone whose job it is.”
Booth emphasised that board members must take an active role in overseeing compliance. Gilbert reinforced that “Directors may feel compelled to get involved in operational issues as a risk prevention measure, but this is unwise”. So, what should directors do instead?
- Define clear accountability—assign responsibility to the CFO, compliance officer, or another senior leader.
- Require structured compliance reporting—covering key risks, remediation, and assurance processes.
- Ensure governance frameworks are in place—including independent reviews to prevent systemic failures.
3. Managing regulatory obligations through disclosure & transparency
Transparency and timely disclosure are essential when instances of non-compliance are identified.
Booth outlined the Fair Work Ombudsman’s compliance policy: “If an inadvertent mistake is isolated and has lasted less than 12 months, there’s no obligation to disclose. However, we advise early disclosure of larger, systemic errors.”
Gilbert advised that organisations with material underpayments should proactively contact the Fair Work Ombudsman. He added, “Even if financial penalties aren’t material to a large corporation, reputational damage can significantly impact stock prices.”
4. Trust, but verify
Booth reinforced the importance of verification, advocating a “trust but verify” approach. She emphasised that compliance is not just about correction but about establishing frameworks to prevent payroll errors in the first place.
Gilbert recommended that Boards ask that management maintain a comprehensive list of relevant regulations and conduct regular compliance audits. “If you’re not confident in compliance when reviewing your risk dashboard, you can’t give it a green light.” If uncertainties persist, he advised assigning an “orange” or “red” status until compliance is fully validated. “Internal audits are essential,” he noted. “If you lack in-house capacity, bringing in external experts periodically is crucial.”
Both Booth and Gilbert stressed organisations must move beyond merely claiming compliance and provide tangible proof. Boards should require management to report regularly on three key compliance questions:
- Have employees been paid correctly?
- If not, by how much?
- What is the root cause of any errors?
5. The difference between the new criminal underpayment offence and unintentional underpayments
Directors must understand the distinction between intentional and inadvertent underpayments:
- The new criminal underpayment offence is focused on intentional misconduct.
- Underpayments are often caused by systemic errors, misinterpretations of awards, or payroll miscalculations.
Booth explained that underpayments exist on a spectrum, ranging from minor miscalculations to serious breaches caused by recklessness, with intentional underpayments at the most severe end. Gilbert reinforced that while directors are responsible for compliance, they are not automatically criminally liable unless there is clear evidence of intent or wilful blindness.
6. Embedding compliance: A long-term commitment for directors
Payroll compliance is not a one-time exercise—it requires ongoing oversight, governance, and a compliance-first culture.
Open communication with employees, stakeholders, and regulators helps prevent minor issues from escalating. Booth stressed that regular engagement with employees and unions—despite potential conflicts—can surface compliance risks early. A strong “speak-up” culture prevents problems from festering. “Set the tone at the top to avoid inaction, tolerance of non-compliance, or perverse incentives,” she advised.
Gilbert reinforced that the key obligation is to ensure the right culture and systems are in place. Booth added that “governance, payroll systems, employee voice, and compliance mechanisms—these are the things [the Fair Work Ombudsman] expect in Enforceable Undertakings, and they serve as a guide for all organisations.”
Ultimately, a well-structured compliance culture makes payroll compliance a strategic priority, not just an operational necessity.
Final words
The discussion reinforced that payroll compliance is more than a regulatory requirement—it is a cornerstone of ethical business practices. Directors play a vital role in fostering a culture of accountability, ensuring that Management takes ownership of accurate, transparent, and compliant payroll systems.
With regulatory scrutiny increasing, organisations must take a proactive approach to payroll compliance. Diligent oversight, regular audits, and open dialogue with stakeholders are essential to mitigating risk, protecting reputations, maintaining employee trust, and upholding the highest standards of corporate governance.
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Yellow Canary provides insights into an organisation's compliance status, equipping boards with the data and visibility necessary to evaluate whether employees are receiving compensation aligned with modern awards, enterprise agreements, superannuation and long service leave.
